It is nearly twenty years since Britain was unceremoniously ejected from the European Exchange Rate Mechanism. But Ed Balls showed today that the events of September 1992, which did so much to shape David Cameron, have also left a mark on him too.

In his speech to the Labour conference, Balls recalled how he left the FT in 1994 to go and work for Gordon Brown. This was, Balls said, to help the then shadow chancellor build a "reputation for credibility".

Balls didn't mention that his decision to leave FT was a direct consequence of Britain's dramatic ejection from the ERM. As I blogged in June, Peter Mandelson was instrumental in recruiting Balls amid general agreement that Brown needed to strengthen his operation after he was weakened by his support for British membership of the ERM.

The legacy of that experience hangs over Balls nearly twenty years later and helps explain his approach today to the fiscal deficit. Balls explained in the Guardian on Saturday that supporting John Major's decision to enter the ERM in 1990 gave Labour no room for manoeuvre at the next election, even though this took place five months before Black Wednesday:

Our party tried this "hug them close" strategy in 1990 when, in the search for credibility, Labour backed the Tory policy on the ERM. Month by month, as the economy slumped further into deep recession and interest rates stayed high, families and businesses were crying out for an alternative. Labour should have won in 1992. But we lost because on jobs and living standards we had nothing distinctive, credible or compelling to say.

It his determination to avoid a repeat of Labour's experience in 1992 that helps explain why Balls refuses to give ground on the deficit. He will apologise for a raft of mistakes by the last government, from the 75p pension rise to the abolition of the 10p tax rate. But Balls will not acknowledge mistakes in notching up Britain's largest peacetime deficit.

Balls believes that Labour has no need to apologise because the deficit was largely caused by maintaining vital spending during the worst financial crisis since the war. But he is rejecting internal party pressure to outline the exact consequences of Labour's plan to halve the deficit over four years – implementing most of the coalition's cuts – for reasons that hark back to 1992.

Balls believes this approach would hand a gift to the Tories who would say that Labour has accepted George Osborne's critique of the last government's handling of the economy. This was that Brown abandoned his love for "prudence" and made structural spending commitments on the basis of tax receipts from cyclical growth in the services sector.

Supporters of Tony Blair say that the stance adopted by Balls is reminiscent of the arguments deployed by Gordon Brown in the summer of 2009 during a row over Labour's spending plans. James Purnell resigned from the cabinet in part because of his frustration that Brown was attempting to frame the next election as a choice between Labour investment and Tory cuts. Purnell said that Labour should be more honest about the looming cuts because voters knew the choice would be between Tory cuts and Labour cuts. This was rejected out of hand by Brown on the basis that acknowledging the scale of cuts would cede vital political territory to the Tories who would say that Labour had accepted their critique.

Balls did outline new fiscal rules today. They are to get:

• Britain's current budget back to balance.

• National debt on a downward path.

Treasury sources say these rules show Balls has accepted the principle of Osborne's own "fiscal mandate" outlined in his emergency budget last year. But the sources said Balls is being much less specific than Osborne whose mandate has two main elements:

• The structural current deficit should be in balance in the final year of the five-year forecast period – 2015-16.

• A fixed target for debt – ensuring that debt is falling as a share of GDP by 2015-16.

Balls says it would be wrong to be more specific because his rules are designed for the next Labour government and it is too early to say what size the deficit will be at the next election.

The shadow chancellor showed today that he is one of the most dominant forces in the Labour party. But his speech once again highlighted differences between the camps of Gordon Brown and Tony Blair. Brown's camp believe that Labour has no need to apologise for its handling of the economy.

Blair's supporters say voters believe that major strategic mistakes by the last government were made which went much further than the abolition of the 10p tax rate. Until those mistakes are acknowledged, the Blairites say, the electorate will not listen to Labour.